For a decade I have run a successful online business alongside my husband selling high-quality stainless-steel cookware. Today we face a damaging and antiquated online sales tax that will threaten our ability to remain successful. Similar to thousands of other Texas businesses, we sell our products through online marketplaces like Amazon, Etsy, and eBay — websites that connect small businesses to millions of customers worldwide. When a customer buys one of our products through a marketplace, we pay the marketplace a fee for its services — things like displaying our products on the website and processing the customer’s payment. That’s standard for e-commerce.
Now, in a surprise that I would expect to happen in California, the state is going to start collecting taxes on these e-commerce fees based on an antiquated 1987 law taxing “data-processing services.” The logic, as Comptroller Glenn Hegar explained in a recent op-ed, goes like this: When a customer purchases something through an online marketplace, “(t)he reality is there are two purchasers, two sales contracts and two taxable transactions”. In other words, when a customer buys an item through, say, eBay, the item’s seller simultaneously buys “data-processing services” to help facilitate the sale. And according to current law, both purchases are subject to sales tax. One born to the consumer, the other born to the seller.
A law from 1987 wasn’t intended to apply to e-commerce that had yet to exist. But as Hegar notes in the same op-ed, “Current tax law applies to online marketplaces just as it does to the traditional businesses within our communities, and my job is to collect taxes fairly.” Thankfully, Rep. Angie Chen Button and Sen. Charles Perry have introduced legislation to fix this mess.
A new tax could hardly come at a worse time for Texas small businesses. Recently, we’ve seen dramatic increases in shipping and warehousing costs — and now many businesses are dealing with steep tariffs and recession concerns.
A new tax would force us to raise prices. If we do that, we’ll lose sales to competitors based in other states whose products cost less because they don’t have to pay the tax. That’s terrible for Texas’s small businesses and the state’s economy. Why would the state want to discourage entrepreneurs like me from selling through online marketplaces, which offer so many ways for small businesses to find customers, compete, and succeed?
This is double taxation. It allows the state to collect taxes on over 100 percent of an item’s sales price. If I sell a $50.00 saucepan and pay Amazon an $8.00 commission, the state will collect taxes on $58.00. The customer will pay sales tax on the $50.00 sale, and I’ll pay sales tax on the $8.00 I pay Amazon. That doesn’t seem right.
I don’t understand why Texas would disadvantage my business and other local companies against other out of state sellers. As our state website proudly says, Texas strives to be “an environment where entrepreneurs have the freedom to aspire, grow, and prosper.” A new Texas-sellers-only tax directly counters that aim.
The 1987 law is incompatible with the realities of the 21st-century economy. If Texas wants to lead in the digital economy, it needs laws that help it move forward, not keep it stuck in the era of the AppleIIGS. I urge lawmakers to pass HB 1681 and SB 265 and help Texas’s online entrepreneurs grow, compete, and thrive in today’s — and tomorrow’s — digital economy. Otherwise, everyone’s prices will see an overnight uptick all because of inaction.
Asha Kangralkar is co-founder of Dallas-based cookware company AVACRAFT. In 2021, Kangralkar was named to the Forbes Next 1000 list that showcases new faces that redefine what it means to build and run a business today.
